performance linked incentives2
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- 1. PERFORMANCE LINKED INCENTIVES
Module 4
2. Common group/organizational incentive plans
Group/organization wide incentive plans involve cooperation among
employees, management and union in order to achieve broader
objectives such as organization wide reduction in manpower,
materials and supply cost, strengthening of loyalty to the
organization, harmoniousIR, and decreased turnover and
absenteeism.
Common Group/organizational incentive plans as follows:
3. Gain sharing plan
Isn't it a compensation system that places a big carrot in front of
employees in the form of a financial incentive?
Isn't it the same as profit sharing that pays an annual bonus to
workers when times are good?
Is it about people working harder in order to make a little more
money?
4. Gain sharing plan
The Gain sharing concept dates back to the 1930's when a labour
leader, Joe Scanlon, preached that the worker had much more to
offer than a pair of hands.
5. Gain sharing plan
Gainsharing may be best described as a system of management in
which an organization seeks higher levels of performance through
the involvement and participation of its people. As performance
improves, employees share financially in the gain. It is a team
approach; generally all the employees at a site or operation are
included.
6. Gain sharing plan
Purpose: To drive performance of an organization by promoting
awareness, alignment, teamwork, communication and
involvement.
Application: The plan commonly applies to a single facility, site
or stand-alone organization.
Measurement: Payout is based on operational measures (productivity,
quality, spending and service).
Funding: Gains and resulting payouts are self-funded based on
savings generated by improved performance.
Payment Target: Payouts are made only when performance has improved
over a historical standard or target.
Employee Eligibility: Typically all employees at a site are
eligible for plan payments.
Payout Frequency: Payout is often monthly or quarterly.
7. Gain sharing plan
Form of Payment:Payment is cash rather than deferred compensation.
Many organizations pay via separate check to increase
visibility.
Method of Distribution:Typically all employees receive the same
percent payout or rupee per hour bonus.
Plan Design and Development:Employees often are involved with the
design and implementation process.
Communication: A supporting employee involvement and communication
system is an integral element of gainsharing and helps drive
improvement initiatives.
Pay for Performance:Gains are generated only by improved
performance over a predetermined base level of performance.
Therefore, gainsharing is viewed as a pay-for-performance
initiative.
Impact on Behaviors: Gainsharingreinforces behaviors that promote
improved performance. It is used as a tool to drive cultural and
organization change.
Impact on Attitudes: Gainsharing heightens the level of employee
awareness, helps develop the feeling of self worth, and builds a
sense of ownership and identity to the organization.
8. Gain sharing plan
9. Gain sharing plan
As an example of how gain sharing works, consider a company
producing rigid and steering differential axles for tractors. From
its records, the company determined that every $1,000,000 of good
product output required 10,000 worker hours. Under gain sharing,
the next $1,000,000 of axle output and shipment was produced with
only 9,000 hours. If the average wage rate is $10 an hour, the
1,000 hours saved are worth $10,000. That is a gain to be shared
equally between the workforce and company.
10. Gain sharing plan
The involvement system provides a structured way for employees to
become more active in the business. It helps to foster
communications, up, down, and throughout the
organization.Gainsharing combines two of the most active areas in
the human resources field: pay for performance and employee. There
are two major issues in developing a successful gainsharing plan:
the bonus formula and the employee involvement structure. Both
pieces are needed and are mutually reinforcing. The bonus rewards
performance and answers the question, "What's in it for me?" The
involvement structure establishes a vehicle for employees to "work
smarter" and improve information sharing. Higher levels of
involvement lead to new behaviors and improved organization
performance. Improved performance results in a financial bonus,
which leads to higher involvement. This mutually reinforcing
concept drives continuous improvement.
11. Profit sharing plan
One of the first documented profit sharing plans in the United
States was introduced in 1794 at New Geneva, PA, Glass Works.
Profit sharing plans are based on 2 premises:
the promise to provide additional economic rewards when profits of
the organization permit it.
the implied acceptance of all employee contributions that will
advance the profit goal.
12. Profit sharing plan
When profits are up, I get more. If profits are down, theres no
consequence. Companies that install these plans hope to enable
employees to share in the organizations success, to motivate
workers to improve profits, and in turn to act in the best interest
of the company.
13. Profit sharing plan
The compensation can be stocks, bonds, or cash, and can be
immediate or deferred until retirement.
The share of profits paid to the management, or to the Board of
Directors is sometimes called the tantime.
14. Cafeteria plan
Cafeteria plan/flexible benefit plan is a system under which each
employee has some choice as to the form and timing of all or a
portion of total compensation. It is like choose your own reward
plan.
15. ESOPS
Stock options are a right to purchase a specified number of shares
of a companys stock at a specified price for a specified period of
time.
Companies use stock options as a method of long-term
compensation.
16. ESOPS
The primary objective of stock-based compensation arrangements is
to achieve alignment between the goals of management and a
company's stockholders. The intention is to encourage management to
act in a manner that will increase the stock's market value. In
addition, as stock options generally vest over a number of years,
stock compensation also serves as a mechanism to retain and reward
top employees.
17. ESOP scheme
Our ESOP scheme has been a tremendous success, both in terms of
human resource organizational growth. Today, we are one of those
rare IT companies where the attrition rate is a very low 2%. In
fact, we are probably one of its kind in the industry with 22.32%
of the company being held by employees, says C K Shastri, Managing
Director, Intense Technologies.
18. ESOPS IN ADITYA BIRLA GROUP
For the first time in its 60 year old history, the $10 billion
Aditya Birla Group has announced an ESOP 2006 across 4 of its group
companies. Grasim Industries, Aditya Birla Nuvo and UltraTech
Cement. The board of the 4 companies met to decide on granting
stock options to eligible employees and compensation committees
have been set in place for each of the companies.
19. Glossary
Salary compression- A salary inequity problem generally caused by
inflation, resulting in longer term employees in a position earning
less than workers entering the firm today.
Gross salary-total of your earning
Net salary-amount credited to your account after deduction.
Split award method-breaks bonus into 2 parts. The manager actually
gets 2 separate bonuses, one based on his/her individual effort and
one based on the organizations overall performance.
20. Glossary
Wage differential-The difference in wages between workers with
different skills in the same industry or between those with
comparable skills in different industries or localities.
Severance pay-Pay and benefits an employee receives when they leave
employment at a company.
Merit pay-Pay increase based on goals or achievements set by an
employer, rather than a pay rated based on union contract or a
defined pay scale for a position (pay for performance).
21. Glossary
Fringe Benefit: Anything in addition to Guaranteed Cash
Compensation.
E.g.: Conveyance, Housing, Loans, Credit Card, Telephone, Insurance
Coverage, Club Membership etc. are all Fringe Benefits.
Perquisites are those facilities which the position carries.
Indirect workers: Workers not directly concerned with production.
E.g.: HR
22. Glossary
Reverse incentive plan: Penalty for poor performance rather then
reward for good.
Cost of living Index: A theoretical price Index that measures
relative cost of living over time.
A signing bonusis a sum of money paid to a new employee by a
company as an incentive to join that company.
23. Glossary
Variable pay is employee compensation that changes as compared to
salary which is paid in equal proportions throughout the
year.
Variable pay is awarded in a variety of formats including profit
sharing, bonuses, holiday bonus, goods and services such as a
company-paid trip etc.
24. Control is not leadership; management is not leadership;
leadership is leadership.
-Dee Hock